Saturday, December 13, 2008

Worldwide Economic Implosion Picks up Steam

The dollar fell below 90 yen today, continuing its recent downward march. These are the first waves of oncoming tsunami of the total collapse of the dollar. The collapse of the dollar will inaugurate hyper inflation within America. Purchase your necessary capital goods within the next six months, before the hyper inflation kicks in. Also, plant your Victory Garden this spring, so you are shielded from the coming rise in food prices, which will spark international famines. The food shortages and riots we saw last summer will pale in comparison to what we will see in 2009.

The yen's surge comes days after Japan said its economy -- the world's second-largest -- fell into a deeper recession in the third quarter than first thought. The Japanese economy shrank at an annual pace of 1.8% in the July-September period, compared with its original estimate of a 0.4% contraction. Companies are feeling the pain. Earlier this week, Sony Corp. announced plans to slash 8,000 jobs around the world, or about 5 percent of its global work force in a bid to bolster its bottom line. The consumer electronics giant recently lowered its full-year earnings projection to 150 billion yen ($1.5 billion), down 59% from the previous year.
Toyota has also cut its net profit forecast for the year ending March 2009 to 550 billion yen ($5.5 billion), a third of the previous year's earnings. The dollar has fallen about 20% against the yen this year and could be headed lower if the Federal Reserve cuts interest rates again and investors flee for higher-yielding currencies.

"Investing in the health of the American people is a crucial part of the nation's economic recovery," said Sen. Edward M. Kennedy (D-Mass.), chairman of the Health, Education, Labor and Pensions Committee.

Attitudes like Senator Kennedy's are going to worsen and prolong our Greater Depression. Obviously, taking care of sick people is a necessity. The problem is, health care spending is bad for the economy. Selling it to the people as a stimulus is false, a convenient lie to get a socialist political act accomplished. This whole conflagration is becoming a form of generational warfare. The elderly Baby Boomers are more than happy to strap the younger generations to the harness of their support, with massive social programs and long-term debt. Unfortunately for them, they did not have enough children to support their own generation, so it is impossible for society to support the Baby Boomer's retirement and health care needs. So far, they seem to have no problem taking down the whole productive economy in the effort, though.

Yet another reason why we are entering a Greater Depression: government creating perverse incentives, and preventing the creative destruction of a normal downturn.
Jim Rogers, one of the world's most prominent international investors, on Thursday called most of the largest U.S. banks "totally bankrupt," and said government efforts to fix the sector are wrongheaded. Speaking by teleconference at the Reuters Investment Outlook 2009 Summit, the co-founder with George Soros of the Quantum Fund, said the government's $700 billion rescue package for the sector doesn't address how banks manage their balance sheets, and instead rewards weaker lenders with new capital.

"Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," said Rogers, who is now a private investor. "What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."

Wholesale prices fell considerably in November, as energy prices continued to plummet, according to a key government inflation reading released Friday. According to the Labor Department, the Producer Price Index for finished goods fell 2.2% last month. That drop was less than the 2.8% decline in October, but greater than the 2% decrease economists surveyed by had forecast. Prices at the wholesale level have fallen sharply as of late, dragged down by falling energy prices. The index that measures the price of energy goods fell 11.2% in November, following a 12.8% drop in October, which set a 22-year record. Crude oil prices fell 20% in the month. Food prices, which fell 0.2% in October, were unchanged last month. Commodity prices such as corn and grains have fallen slightly amid slumping demand amid an ongoing recession. The so-called core PPI, which strips out volatile food and energy prices, rose just 0.1% after a rising 0.4% in the previous month. Economists had forecast a 0.1% rise in that reading.

Economists say low inflation could give the Federal Reserve more wiggle room for lowering interest rates to record lows when it meets next week. The Fed cut its key funds rate to an all-time low of 1% in response to deterioration in global financial system, but those cuts tend to be inflationary. [AS WE SAW FROM THE PREVIOUS ARTICLE, THESE INTEREST RATE CUTS ARE ALSO COLLAPSING THE DOLLAR] A key inflation reading on the retail level, the Consumer Price Index, is due to be released next week. Economists forecast the report to show a record 1.3% drop in consumer prices in November. If prices fall below the cost it takes to produce products, businesses will likely have to cut production and slash payrolls. Rising unemployment would cut demand even further, sending the economy into a vicious circle.

Sales at U.S. retailers dropped for the fifth straight month in November. The Commerce Department said total retail sales fell 1.8 percent to a seasonally adjusted $355.66 billion last month following a revised 2.9 percent plunge in October. Excluding motor vehicles and parts, sales were down 1.6 percent in November after a revised 2.4 percent October fall. Gasoline sales plummeted a record 14.7 percent in November after falling 12.9 percent in October. Significant falls in prices at the pump are reflected in the retail sales report, which simply compiles total sales by gasoline stations. Excluding gasoline, retail sales for November edged down just 0.2 percent after a 1.6 percent slide the previous month. Sales of electronic goods climbed 2.8 percent in November, the strongest monthly rise since the beginning of 2006. Clothing sales were up a modest 0.8 percent after a 2 percent drop in October. But sales by new cars and parts dealers fell 2.8 percent after declining 5.5 percent in October. New-car sales have been dropping steeply for months, in part because of an ongoing credit crisis that makes it harder to get loans but also because consumers have been cautious about buying costly items when jobs are being cut and the economic outlook is weakening.

Oil prices retreated Friday below $44 a barrel after a $14 billion bailout plan designed to prevent the collapse of the auto industry collapsed in the Senate. U.S. crude for January delivery slipped $4.38 to $43.60 a barrel in electronic trading. A day earlier, oil prices had approached $48 a barrel after the bill, which would have provided emergency loans to General Motors and Chrysler, passed the House late Wednesday. But on Thursday Senate Democrats and Republicans failed to reach a compromise on the bailout proposal. "Anything that's bad for the economy is bad for crude oil prices," said James Williams, energy economist with WTRG Economics in Arkansas.

Investors were also anticipating a large production cut from the Organization of Petroleum Exporting Countries, an international trade cartel whose members produce about 40% of the world's oil.
The price of crude oil, which has fallen more than $100 a barrel, or nearly 70%, since hitting a record high of $147.27 in mid-July, has been weighing heavily on many producers who rely on oil profits to support their local economies. OPEC President Chakib Khelil told the Associated Press earlier this week that the oil market could expect to see a "severe" cut in production levels in order to bolster prices. Some analysts have said the group could cut production by as much as 3 million barrels a day. The group is scheduled to meet Wednesday to make a production decision

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